A consumer is any person that uses finished goods or services.
The act of consuming is called consumption.
Consumers purchase goods and services to satisfy their needs and wants.
Needs are the things we must have in order to survive.
Wants are the things we desire that are not needed for our survival.
all of our needs are the same; food, clothing and shelter.
Our wants vary from person to person. They are unlimited, we always want more.
Means are the personal resources we have available to satisfy our needs and wants. They include time, skills and money. We all have a limited amount of time, skills and money available. we have limited means.
The means available to an individual may also include the resources of the household, extended family (or whanau) and the community (or iwi).
Scarcity and choice
We cannot satisfy all our needs and wants because of our limited means, that is, because we don't have enough time and money to do and buy everything we want.Therefore we must make choices. Which specific wants do we satisfy with our limited means?
The decisions we make on how to use our limited means to satisfy our unlimited wants are the source of the economic activity in the world.
Eg Sam must choose how to spend his time and money as he considers what to do at the end of Year 13. He comes up with 3 options:
Study graphics at the local polytechnic.
Work for a year to save money for university
Travel NZ for a year and surf.
Sam decides this is his best option
He considers this to be his second best option
this would be his 3rd best option
Another person faced with the same options may very well decide on a different order due to the different values that they hold. Values is looked in detail in section 1.6.
To make the most from our limited means, it is important that we make good decisions. Decision making is looked more indepth in section 1.6.
Opportunity costs
When we do finally choose a way to spend our limited means, we miss out on the benefits of the next best option. This sacrifice is the opportunity cost of the choice made.
Eg
In the example above, Sam decides to spend the year after Year 13 studying graphic design at polytechnic, what is the opportunity cost of this decision?
Answer: By choosing to study graphics at polytechnic, the opportunity cost is the income and skills he would have gained from a year's work.
Households
A household is a person or group of people living under the same roof. It is a convenient way to group consumers together when analysing their spending patterns. Household income is the total amount of money coming into a household. Household spending is also called the household expenditure.
A household will usually first spend their income to satisfy their needs, (food, clothing, shelter) and basic wants, such as electricity, telephone, etc...
If enough money remains after the household's needs and basic wants are met, the household can then spend the remainder of the income on non basic wants, also called luxuries, eg computer, holidays, Sky tv, etc...
Any money not spent by the housesold is called household savings. This is usually saved with financial institutions.
Household spending patterns are related to household income.
As household income increases, household spending will also increase. Spending increases because households replace inferior goods (lower priced goods that we demand less of as our income increases) with higher priced substitute goods. Eg Replacing budget shoes by brand name shoes.
Spending patterns: (The proportion spent on different goods is the key here).
Household income: $20,000
Household income: $50,000
Household income: $80,000
A low income household spends most of their income satisfying their needs.
With a higher income, households can satisfy their requirement of needs and have some income left over to satify some wants.
High income households can satisfy even more wants and find it easier to make savings.
Most of the household's income goes on needs.
A proportionally lower amount of this household's income goes on needs, and a proportionally higher amount of this household's income goes on wants.
A very small proportion of this household's income goes on needs. The major proportion of this household's income goes on wants. Another small proportion of the income can also be spent on savings.
A large amount of inferior goods will be consumed to make income go the furthest. eg; Mince
Fewer inferior good will be consumed as these are replaced with normal goods.
eg; rump steak
Very little inferior goods will be consumed in this household, while some normal goods will be being replaced by luxury goods.eg; Scotch Fillet (steak)
Interdependence
Interdependence means that multiple parties depend and rely on the other for their existence.
Eg Households and Producers are interdependent. This means that they rely on each other.
Households rely on producers to provide goods and services, and to provide income. Producers rely on households to provide them with revenue and to provide resources.
Consumer demand
Your desire for a good is your willingness to buy it.BUT to have a demand for a good, you must also be able to pay for it.
Eg If you want a new mountain bike, but are unable to pay for it, then you do not have a demand.
If you want a new CD, and are able to pay for it, then you have a demand.
Consumer demand is the quantity of a good or service that a consumer is willing and able to buy at a range of prices, over a period of time.
A consumer's demand can be shown by using a demand schedule or a demand curve.
A demand schedule is a table that gives the quantity of a good/service demanded for different prices of the good/service.
A demand curve is a graph of the demand schedule with price on the vertical axis, and quantity on the horizontal axis.
Consumers
A consumer is any person that uses finished goods or services.
The act of consuming is called consumption.
Consumers purchase goods and services to satisfy their needs and wants.
The means available to an individual may also include the resources of the household, extended family (or whanau) and the community (or iwi).
Scarcity and choice
We cannot satisfy all our needs and wants because of our limited means, that is, because we don't have enough time and money to do and buy everything we want.Therefore we must make choices. Which specific wants do we satisfy with our limited means?
The decisions we make on how to use our limited means to satisfy our unlimited wants are the source of the economic activity in the world.
Eg Sam must choose how to spend his time and money as he considers what to do at the end of Year 13. He comes up with 3 options:
To make the most from our limited means, it is important that we make good decisions. Decision making is looked more indepth in section 1.6.
Opportunity costs
When we do finally choose a way to spend our limited means, we miss out on the benefits of the next best option. This sacrifice is the opportunity cost of the choice made.
Eg
In the example above, Sam decides to spend the year after Year 13 studying graphic design at polytechnic, what is the opportunity cost of this decision?
Answer: By choosing to study graphics at polytechnic, the opportunity cost is the income and skills he would have gained from a year's work.
Households
A household is a person or group of people living under the same roof. It is a convenient way to group consumers together when analysing their spending patterns.
Household income is the total amount of money coming into a household.
Household spending is also called the household expenditure.
A household will usually first spend their income to satisfy their needs, (food, clothing, shelter) and basic wants, such as electricity, telephone, etc...
If enough money remains after the household's needs and basic wants are met, the household can then spend the remainder of the income on non basic wants, also called luxuries, eg computer, holidays, Sky tv, etc...
Any money not spent by the housesold is called household savings. This is usually saved with financial institutions.
Household spending patterns are related to household income.
As household income increases, household spending will also increase. Spending increases because households replace inferior goods (lower priced goods that we demand less of as our income increases) with higher priced substitute goods. Eg Replacing budget shoes by brand name shoes.
Spending patterns: (The proportion spent on different goods is the key here).
eg; rump steak
Interdependence
Interdependence means that multiple parties depend and rely on the other for their existence.
Eg Households and Producers are interdependent. This means that they rely on each other.
Households rely on producers to provide goods and services, and to provide income. Producers rely on households to provide them with revenue and to provide resources.
Consumer demand
Your desire for a good is your willingness to buy it.BUT to have a demand for a good, you must also be able to pay for it.
Eg If you want a new mountain bike, but are unable to pay for it, then you do not have a demand.
If you want a new CD, and are able to pay for it, then you have a demand.
Consumer demand is the quantity of a good or service that a consumer is willing and able to buy at a range of prices, over a period of time.
A consumer's demand can be shown by using a demand schedule or a demand curve.
A demand schedule is a table that gives the quantity of a good/service demanded for different prices of the good/service.
A demand curve is a graph of the demand schedule with price on the vertical axis, and quantity on the horizontal axis.
When drawing a graph, make sure that you have:
Eg